Network economics

The network economics is a field of economics, which examines the impact of network effects on the decisions of economic actors regarding the allocation of scarce resources. One of the core themes of the network economics include the influence of network effects on consumer demand, compatibility decisions and standardization, technological advances in highly networked industries, two-sided markets, information networks and intellectual property and the economics of social networks. The network economics is from those related with their terms of network economy, ie To distinguish network management, and information economics; while the network economy is an economic structure are the main feature in the networks, the information economics is a field of economics which (or lack thereof ) affects the influence of information on economic processes and decisions economic actors.

The relevant for network economics networks include transportation networks, communications networks and energy networks (eg the mains ).

History

The network economics has a long tradition as part of the economic science body, but an independent academic discipline within the economics began to be only in the 1990s. The advancement of network economics is highly dependent on the development of new technologies and products based on the use of network structures, as well as new network services (eg mobile banking ). Another promising research direction of network economics is to improve the existing social network models, in order to apply them in a stronger economic context can, for example, to examine the economics of virtual organizations.

Core issues

Consumer demand under network effects

Consumer preferences show positive (negative) network effects when the consumer benefit increases (decreases ), the more consumers use the same or a compatible brand. The same applies to network effects in production. Network effects play especially for the demand for telecommunications services play an important role, where the incentive to join a network with the number of potential conversation partners who join the network or acceded increases. Economically, this is evident on the one hand in a variety of consumer equilibria, on the other hand, in coordination problems. The network effect hypothesis has since been empirically tested in various environments, including by Gandal (1994 ), Economides and Himmelberg (1995) and Brynjolfsson and Kemerer (1996).

Compatibility decisions and standardization

See also Compatibility ( economics)

Competing brands are called compatible if both can be operated on a common standard. For the analysis of compatibility and its impact on the consumer benefits, there are three approaches: the network externalities approach, the component approach and the software approach. The network economic approach examines in particular the compatibility and incompatibility of products under the influence of network effects. It is remarkable that in the case of incompatible products, the company with the larger user base requires a higher product price and a higher profit than competitors generates, that the differences between the equilibrium prices and profits of the respective products with the consumer preference increase for larger networks and that Price competition is enhanced when consumers put more emphasis on the size of the network, as this company brings to lower their prices in order to increase their customer network.

Technological progress in network industries

In view of technological advance is a priority issue of whether the new technology by the consumer or industry is actually assumed that many users use the already existing technology. This question ultimately corresponds to a question about the strength of the respective technological network effects. In this context, the network economics deals with various topics, including the game-theoretic modeling strategic technological change, the importance of the timing of technological transition and standardization, the Sponsorisierung new technologies as well as international standardization. A special role to play here the case that improved technology with an older technology is incompatible, and its economic consequences. Another special case of network economics is an attempt to network economic interpretation of Schumpeter's theory of innovation, in which technological progress in enterprises play a key role.

Two-sided markets

See also Two-sided market

The theory of two-sided markets analyzed demand and supply surpluses between two markets for complementary products and describes self-reinforcing network effects. Such network effects in the context of two -sided markets have been demonstrated empirically for the Yellow Pages, advertising in magazines, and credit card associations. Rysman (2009) points out, however, that the literature is thematically separated to two -sided markets with its focus on price structures of the literature on network effects.

Information Networks and Intellectual Property

See also information economics

The dissemination of information can be conceptualized as a network, where the properties of the information disseminated and the technology used for this purpose is of particular importance. The latter is even more important when it comes to the reproduction of information: different reproduction technologies may differ in the Qualitätet of copies made with them, which in turn can affect the pricing structure of the information. Two Application fields of economics of information networks on the one hand the neutral to positive impact of libraries on the profits of bookstores and publishers, on the other hand, the neutral to positive economic consequences of copying and pirated software and the effectiveness of various protection methods.

Economics of social networks

The economics of social networks can be structured around the three key concepts of conformity, vanity and snobbery and stands at the interface between economics and sociology. Compliance against the conventions of social networks as an assumption of economic models explained a number of social and economic behaviors that fixing social standards and social exchange behavior when giving. Harvey Leibenstein describes in this context, three external effects of social networks: (1) the bandwagon effect and herding behavior, (2) non-conformity and snob effect, and (3 ) Veblen's conspicuous consumption ( Veblen effect). Especially herd behavior describes how individuals act together in a group regardless of specific guidance and can be economically interpreted as equilibrium, in which every decision maker has the choice either to follow his own signal or previous decision-makers; this model is also relevant in explaining the choice of products of early users. Finally, economic models of social networks are also the Declaration of snobbery, ie that state in which the benefits of the consumers decreases the more consumers buy the same product.

Specialized journals

Issues, problems and studies on network economics, or network economy are increasingly published in specialized journals. These include, among others, the Review of Network Economics ( since 2002).